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Horsnell: 2010 oil demand is strong

Sam Fletcher
OGJ Senior Writer

This year is set to be the second strongest for oil demand growth in the last 30 years with the additional call on liquids production from the Organization of Petroleum Exporting Countries to surpass 1.2 million b/d, with another strong increase expected in 2011, said Paul Horsnell at Barclays Capital in London.

“Price risks are continuing to build towards the upside in the face of continued positive demand surprises and a fading away in the…momentum of non-OPEC supply,” Horsnell reported Oct. 14. “Oil product markets are tightening rapidly. The surplus of US oil product inventories above their 5-year average has fallen by 13.2 million bbl over the past weeks, including a 5.3 million bbl fall in the latest data, led by a plunge in East Coast gasoline inventories. European oil product markets are being tightened by the impact of French strikes, with that tightness becoming acute in some prompt markets.”

The US Energy Information Administration said inventories of benchmark US crudes dipped 400,000 bbl to 360.5 million bbl in the week ended Oct. 8, the latest period available at presstime. Gasoline stocks dropped 1.8 million bbl to 218.2 million bbl in that same period. Distillate fuel inventories decreased 300,000 bbl to 172.2 million bbl.

Olivier Jakob at Petromatrix in Zug, Switzerland, said, “Stocks of visible products (crude plus clean petroleum products) had a draw of 3.2 million bbl and still have a long way to go before reaching the levels of last year.” He noted a 1.5 million bbl reduction of crude stocks on the “discounted” West Coast, compared with small builds in the Midwest and along the Gulf Coast to “close to the highs of the year.”

Jakob reported no shortage of crude stocks, although imports from Canada into the Midwest are still limited by the Enbridge Energy Partners LP’s reactivated 670,000 b/d 6A crude pipeline that was shut-in Sept. 9 because of a leak (OGJ Online, Oct. 12, 2010). He said, “With refinery runs seasonally off their peaks, the Midwest had a 1.3 million bbl stock build with Cushing, Okla., unchanged.” Approaching winter demand, heating oil stocks continued to build and are higher than a year ago, he said.

“Gasoline stocks had a 1.8 million bbl draw and have lost 8 million bbl over the last 3 weeks. The overall stocks are still, however, at a multiyear high for the season,” Jakob said. “The strikes in France are extending and could start to have an impact on gasoline exports to the US. We are, however, out of the main driving season in the US, so refiners have plenty of time to rectify a drop of imports due to France. The US imports more gasoline and components from India than from France, and the impact on the US will really depend on whether the strikes are also extending to [other] ports. If the French ports all shut down as well, there will be little need to import gasoline into France to offset the loss of refinery production.”

OPEC stands pat
Meanwhile as expected, ministers of the Organization of Petroleum Exporting Countries decided at their Oct. 14 meeting in Vienna to leave current production levels unchanged. They cited “important market drivers” indicating the crude market remains well supplied with refinery utilization still low.

During its meeting, OPEC approved a second long-term strategy (LTS), having adopted the first in September 2005. “The new LTS is timely, given the major upheavals the world and the oil market have faced in recent years. The onset of the global financial crisis in 2008 and the ensuing economic recession, which was the deepest and most widespread in more than 6 decades, have clearly had, and continue to have significant structural impacts upon the oil market,” OPEC said. A summary of the new LTS is to be released at OPEC’s next extraordinary meeting Dec. 11 in Quito, Ecuador.

(Online Oct. 18, 2010; author’s e-mail: samf@ogjonline.com)


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